A World of Uncertainty: Economics and the Globalization of Antitrust

Abstract

This paper discusses some implications of the considerable uncertainty that, despite dramatic recent advances in the application and implementation of economics, surrounds antitrust analysis. During the past quarter century, increasingly rigorous economic models and econometric techniques have come to be employed in the identification and estimation of competitive effects. On the theory front we have witnessed a far greater appreciation of unilateral effects and increased use of game theory. On the empirical front the techniques for estimating demand elasticities have become ever more refined. There has also been growing use of merger simulation models to transform empirical estimates into predictions of competitive effects. The reliance upon microeconomic theory and advanced estimation techniques as a basis for antitrust analysis and decision-making has indeed been striking. It has not, however, eliminated the still-considerable uncertainty and imprecision involved in forming recommendations. One step toward grounding antitrust policy on a more economically sound, welfare-oriented path is to recognize more explicitly the uncertainty inherent in antitrust analysis and prediction, and to incorporate into the decision making process more information on the costs of making wrong decisions.

In addition to analyzing the implications of uncertainty for efficient antitrust policy, this paper explores also the widely perceived differences in antitrust policy between the U.S. and the EU. These differences, it suggests, are not primarily a result of opposing views concerning either the relevance of economics or the ultimate goals of antitrust. Rather, they likely derive from the uncertainty inherent in antitrust decision-making and enforcement, along with different underlying views and presumptions concerning the scope for improvement by an imperfectly performing government over what may at times be an imperfectly performing marketplace.